ATTORNEYS AT LAW 

1227 25TH STREET, NW, SUITE 700 

WASHINGTON, DC 20037-1175 

202.861.0900 

FAX: 202.296.2882 

May 28, 2009 

FILED VIA E-RULEMAKING PORTAL

Office of Health Plan Standards and Compliance Assistance 

Employee Benefits Security Administration 

Room N-5653 

Attention: MHPAEA Comments 

U.S. Department of Labor 

200 Constitution Avenue NW 

Washington, DC 20210 

Centers for Medicare & Medicaid Services 

Department of Health and Human Services 

Hubert H. Humphrey Building, Room 445-G 

Attention: CMS-4137-NC 

200 Independence Avenue, SW 

Washington, DC 20201 

Internal Revenue Service 

Courier’s Desk 

CC:PA:LPD:PR (REG-120692) 

1111 Constitution Avenue, NW, 

Washington, DC 20224 

RE: Comments on the Request for Information Regarding the Paul Wellstone and 

Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 

Published at 74 Fed. Reg. 19155 (April 28, 2009)

Dept. of Labor EBSA File No.: Attention MPSAEA Comments 

Dept. Health & Human Servs. CMS File No.: CMS-4137-NC 

Dept. of Treasury IRS File No.: CC:PA:LPD:PR (REG-120692) 

Dear Sirs and Madam: 

Epstein Becker & Green, P.C. is writing on behalf of its client, the Watershed Addiction 

Treatment Programs (“Watershed”), to respond to the above Departments’ Request for 

Information (“RFI”), published in Volume 74 of the Federal Register at page 19155 on April 28, 

2009, regarding the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction 

Equity Act of 2008 (“MHPAEA”). Watershed appreciates this opportunity to share with the 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 2 of 25 

 - 2 - 

Departments both its first-hand knowledge and experience with ways in which plans have 

historically applied and currently apply both financial requirements and treatment limitations 

under substance use disorder benefits in manners not on par with medical and surgical benefits, 

and its suggestions regarding regulatory guidance for implementation of MHPAEA. 

By way of background, Watershed is a Joint Commission accredited, state licensed, full 

service healthcare provider of substance use disorder as well as co-occurring mental health 

condition treatment services. Watershed has been in operation since 1998 and is recognized as a 

premier provider of a full continuum of care including medical detoxification, intensive inpatient 

(rehabilitation), residential treatment, partial hospitalization and intensive outpatient levels of 

care. Watershed’s treatment services are provided by a team of highly skilled professionals, 

including psychiatrists, nurses, psychologists, licensed mental health counselors and case 

managers. Watershed’s complete continuum of professional treatment services provides patients 

with continuity of care, with the goal of affording each patient the optimum clinical environment 

in which to embark upon long-term recovery. Millions of Americans are afflicted with substance 

use disorders that impact their jobs, families and our society. Substance use disorders are 

chronic diseases, requiring lifetime management. As reported during the U.S. Senate Committee 

on Finance’s April 21, 2009 Roundtable to Discuss Reforming America’s Health Care Delivery 

System, it is estimated that, in this country today, 5% of the chronically ill represent 50% of all 

Medicare costs. By receiving comprehensive, quality care, individuals suffering from the 

chronic disease of substance abuse, can and do recover. 

Watershed recognizes that successful implementation of MHPAEA will help to achieve 

Congress’ goal of parity and equity between healthcare coverage for mental health and substance 

use disorder (“MH/SU”) treatment services and healthcare coverage for medical and surgical 

(“med/surg”) treatment services, including out-of-network coverage. Accordingly, Watershed 

is very encouraged that MHPAEA requires that financial requirements and treatment limitations 

applied to MH/SU benefits can be no more restrictive than the predominant financial 

requirements and treatment limitations applied to substantially all med/surg benefits. 

Watershed also is pleased with the RFI’s request for information on the types of 

limitations currently experienced by MH/SU providers, such as Watershed. Watershed believes 

that for the Departments to understand those limitations, it is important to acknowledge that there 

are unique aspects in the design and management of MH/SU benefits, as distinct from the design 

and management of med/surg benefits of health insurance benefit plans. For example, it is 

Watershed’s experience that inpatient substance use disorder treatment services are often 

provided in duly licensed and accredited free-standing residential treatment facilities rather than 

hospital facilities, in part, because these residential treatment facilities provide the appropriate 

level of care within the continuum of care for substance use disorders. Watershed believes that 

these differences in facility and non-facility licensing and accreditation should not be used as a 

mechanism to limit inpatient treatment. Nor can parity be achieved if the implementing 

MHPAEA regulations do not prohibit these types of treatment limitations. 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 3 of 25 

 - 3 - 

Indeed, as the following chart depicts, both med/surg and MH/SU benefits cover a range 

of facility and non-facility services which span a continuum of care and result in coverage of a 

particular service based on a health plan’s evaluation of whether or not the services are 

“medically necessary.” 

Yet despite the commonalities, it is Watershed’s experience that, historically, MH/SU 

benefits have been administered and managed by plans and employers in a manner so as to limit 

the actuarial risk associated with covering the facility and professional services often comprised 

in the MH/SU benefit. For example, med/surg benefits are seldom subject to absolute, 

prospective treatment limits or caps, such as limiting treatment to a specific number of physician 

visits or hospital admissions per year without regard to the covered individual’s specific health 

care needs. In contrast, MH/SU benefits frequently establish treatment limits or caps such as a 

defined number of office visits per year or a requirement that outpatient treatment fail before 

inpatient services can be provided, all without regard to the patient’s medical condition or need. 

In addition, it is Watershed’s experience that there are inappropriate restrictions as to the 

different types of providers in the MH/SU benefit. Similarly, there are differences in the 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 4 of 25 

 - 4 - 

patient’s financial obligation for services related to the med/surg benefit as compared to the 

MH/SU services.1 

Watershed recognizes the unique challenge that health plans face as they try to strike the 

right balance between providing equity and parity of benefits, while also managing the rate of 

growth in health insurance premiums. While MHPAEA allows for an exemption if an 

employer’s or health plan’s total costs of achieving parity or equity exceed two percent in the 

first year or one percent in the second year, Watershed believes that the federal Office of 

Personnel Management (“OPM”) in its Federal Employee Health Benefit Program (“FEHBP”) 

Call Letter dated April 20, 2009 (“Call Letter”) offered health plans important guidance on this 

issue which should be reflected in the MHPAEA implementing regulations. In particular, OPM 

stressed the importance of health plans identifying value-based solutions to managing the health 

insurance benefit, including med/surg benefits and the MH/SU benefit, as well as the use of 

managed care organizations such as the Managed Behavioral Healthcare Organization 

(“MBHO”).

2

 

The central role of the MBHO in the FEHBP Call Letter also highlights another 

important difference between the two benefits that must be acknowledged if parity is to be 

achieved. That is, with MH/SU benefits, plans often have the MBHO take a more visible and 

active role with MH/SU providers, whereas with med/surg benefits, plans predominantly use 

management organizations in a much less active, less visible role. For example, in contrast to 

the more “pervasive” role that the MBHO has in MH/SU benefit management, a managed care 

organization (“MCO”) is often seen as “invisible” to the patient who is accessing physician or 

hospital services. More recently, however, specialized benefit managers such as a pharmacy 

benefit manager (“PBM”) or a radiology benefit manager (“RBM”), which focus on targeted 

patients or disease conditions, are playing a role which is more consistent with the MBHO role. 

 

1

 As noted in a comprehensive report funded by the Substance Abuse and Mental Health Services Agency 

(“SAMSHA”), mental health services are disproportionately paid by public funds from local, state and federal 

sources, in part because of the coverage restrictions which were implemented by private payers in the 1990’s. 

The SAMSHA report data conversely indicates that the costs for substance abuse services are borne by the 

patient, in the form of out-of-pocket spending associated with both treatment limitations and requirements. 

(Rosenbaum, S., Kamoie, B., Mauery, D. R., Walitt, B. Medical Necessity in Private Health Plans: Implications 

for Behavioral Health Care, Substance Abuse and Mental Health Services Administration (SAMHSA) DHHS 

Pub. No. (SMA) 03-3790, 14, (Nov. 2003)) 

2

 It is important to this discussion to understand that the substance abuse provider community has a long history 

of providing substance abuse services with a strong, upfront role for managed care organizations, such as the 

MBHO. Indeed, in response to the existing treatment and financial requirements currently experienced by the 

MH/SU provider community, the MH/SU provider community, supported by funding from SAMSHA and other 

agencies within the Department of Health and Human Services, developed an evidence-based managed care 

approach to providing the appropriate level of service across the continuum of care. In the substance abuse 

area, this continuum of care is represented by the Patient Placement Criteria of the American Society of 

Addiction Medicine (“ASAM”). These criteria, first published in 1991, provide a common language to develop 

a broader continuum of care that has been used by health plans and substance abuse providers alike. 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 5 of 25 

 - 5 - 

Based upon the important role and cost containment that can be achieved through the use 

of managed care organizations, Watershed believes that value-based decisions for managing both 

med/surg and MH/SU benefits should be factored into the methodology for calculating the actual 

costs of coverage for purposes of determining whether a plan qualifies for a cost exemption 

under MHPAEA. The more visible and active role of MBHOs in MH/SU benefits could be a 

standard applied to the med/surg benefit as well. Watershed believes that the implementing 

regulations addressing the cost exemption should require an assessment as to whether or not 

there is an equitable use of benefit management for med/surg and MH/SU services. In addition, 

Watershed believes that the implementing regulations addressing treatment limitations and/or 

financial requirements should require consistency in the processes by which medical necessity 

determinations are made for med/surg services as well as MH/SU service. The processes span 

the range from the publication of criteria and their use by appropriately trained reviewers through 

the timeliness of appeals processes. Continued use of different utilization management practices 

for med/surg and MH/SU benefits would be inconsistent with MHPAEA. 

MHPAEA was designed to address broad inequities related to the establishment of 

treatment limitations and financial requirements as described above in general terms. However, 

given the complexities of the issues, as well as the nuanced distinctions between benefits and 

services, Watershed believes that the regulations which implement MHPAEA must be 

prescriptive and strive to balance the historical inequities in benefit design and management, 

many of which are discussed below. In particular, Watershed believes that the implementing 

regulation should provide specific guidance to health plans and employers on a wide range of 

regulatory issues including, but not limited to: 1) appropriate reference point for a “plan”; 2) 

standards for compliance with reporting obligations; and 3) examples of what constitutes the 

appropriate reference point for defining a “predominant” limitation. For example, Watershed 

believes that the implementing regulations should require health plans and employers to publish 

the admission and medical necessity criteria used by the plan or employer. Additionally, 

Watershed believes that the implementing regulations should provide examples of predominant 

financial requirements that clearly proscribe the types of conduct that are considered compliant 

with MHPAEA. For example, if the most common or frequent financial requirement for a hip 

replacement is a $500 co-pay for the entire treatment plan (spanning both the inpatient and 

outpatient treatment plan), then this same limitation (and nothing more) should apply to a 

substance use disorder treatment plan. 

In summary, Watershed believes that the regulation should develop specific regulatory 

guidance which is grounded on the common elements between the med/surg and MH/SU 

benefits. These common elements include the use of facility and non-facility services across the 

continuum of care for med/surg services and MH/SU services. Healthcare spending data indicate 

that hospital services are the most significant component of facility costs for the med/surg benefit 

while physician services are the most significant component of non-facility costs. As a result, 

Watershed believes that, in determining whether there is parity and equity with regard to 

treatment limits, the evaluation should consider which type of medical necessity determination is 

predominant. For example, are most services subject to a prior authorization process, or are most 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 6 of 25 

 - 6 - 

services subject to a “post-payment” review process. Similarly, the predominant form of 

financial requirements for the facility and non-facility services of the med/surg benefit should 

apply to the MH/SU benefit. For example, if a specific deductible level is the predominant 

financial requirement for a hospital stay, a comparable deductible would be appropriate for a 

MH/SU facility stay. 

With that background in mind, we have organized the next section of this letter to address 

the six areas identified in the RFI where the Departments have indicated a need for 

additional information. 

RFI Number 1. THE STATUTE PROVIDES THAT THE TERM “FINANCIAL REQUIREMENT''

INCLUDES DEDUCTIBLES, COPAYMENTS, COINSURANCE, AND OUT-OF-POCKET EXPENSES, BUT 

EXCLUDES AN AGGREGATE LIFETIME LIMIT AND AN ANNUAL LIMIT. THE STATUTE FURTHER 

PROVIDES THAT THE TERM “TREATMENT LIMITATION'' INCLUDES LIMITS ON THE FREQUENCY OF 

TREATMENT, NUMBER OF VISITS, DAYS OF COVERAGE, OR OTHER SIMILAR LIMITS ON THE SCOPE OR 

DURATION OF TREATMENT. 

DO PLANS CURRENTLY IMPOSE OTHER TYPES OF FINANCIAL REQUIREMENTS OR TREATMENT 

LIMITATIONS ON BENEFITS? HOW DO PLANS CURRENTLY APPLY FINANCIAL REQUIREMENTS OR 

TREATMENT LIMITATIONS TO (1) MEDICAL AND SURGICAL BENEFITS AND (2) MENTAL HEALTH AND 

SUBSTANCE USE DISORDER BENEFITS? ARE THESE REQUIREMENTS OR LIMITATIONS APPLIED 

DIFFERENTLY TO BOTH CLASSES OF BENEFITS? DO PLANS CURRENTLY VARY COVERAGE LEVELS 

WITHIN EACH CLASS OF BENEFITS?

As a treatment provider of substance use disorder services for over 10 years, Watershed has 

first-hand experience with ways in which plans have historically applied and currently apply 

both financial and treatment limitations to MH/SU benefits. Watershed believes that the 

Departments’ implementing regulations should provide specific guidance to health plans and 

employers on what constitutes a treatment limitation and what constitutes a financial 

requirement. 

Below, we describe Watershed’s experiences with financial requirements and treatment 

limitations and offer Watershed’s recommendations as to the type of guidance that, based on 

Watershed’s experience, would result in a successful implementation of Congress’ intent to 

eliminate structural differences between the med/surg benefit and the MH/SU benefit. 

A. Examples of Watershed’s Experience with Financial Requirements. 

1) Pre-authorization penalties under the MH/SU benefit that are not present or equally 

applied under the med/surg benefit. 

It is Watershed’s experience that many insured plans contain financial pre-authorization 

penalty provisions that apply when a healthcare provider of substance use disorder 

treatment services is unable to or does not obtain a pre-authorization for services prior to 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 7 of 25 

 - 7 - 

admission under the MH/SU benefit. Such financial penalties can range from $500 to 

complete denial of coverage. Conversely, under the med/surg benefit, plans do not 

typically impose these penalties for noncompliance, particularly in urgent/emergent 

situations where a provider is unable to obtain the required prior authorization. 

Watershed Recommendation.—The unequal application of pre-authorization controls 

results in more restrictive financial requirements on MH/SU benefits than are applicable 

to med/surg benefits, thereby violating the plain language and intent of MHPAEA. The 

Departments’ implementing regulations should specify that pre-authorization 

requirements applicable to MH/SU benefits must be no more restrictive than those 

applicable to med/surg benefits in order to be in compliance with MHPAEA. In addition, 

the implementing regulations should specify that the criteria on which grants of preauthorization for MH/SU benefits are based should be no more restrictive than those 

applicable to med/surg benefits. 

2) Requiring completion of treatment regimen under the MH/SU benefit as a condition of 

coverage without a similar requirement under the med/surg benefit. 

 It is Watershed’s experience that many plans require that a member complete the 

treatment regimen as set forth in the plan of care, (for example, a 28 day treatment 

program), as a condition of coverage and payment (i.e., in order for the services to be 

covered and paid under their MH/SU benefit, the patient must complete the full treatment 

regimen as set forth in the plan of care). There exists no such program completion 

requirement under the med/surg benefit. 

To illustrate, under such a plan, a member could receive detoxification, intensive 

inpatient (rehabilitation) and residential treatment for a total of 16 days, and leave 

treatment against medical advice. Because the member did not complete a 28 day 

treatment program, none of the treatment would be covered and paid. In this situation, 

the member must pay out-of-pocket for the entire course of treatment services. 

Conversely, under the med/surg benefit, a member could be recovering from knee 

replacement surgery and be prescribed a series of 28 therapy sessions, yet stop at the 16th

session. On the med/surg side, the 16 treatment sessions would be covered and paid and 

the member would not be required to pay the same out-of-pocket expenses. 

Watershed Recommendation.—A requirement that a member complete a treatment 

program set forth in the plan, in order for any of the treatment services to be covered and 

paid under the MH/SU benefit, is both a separate treatment limitation and results in a 

defacto financial requirement that does not exist under the med/surg benefit. The 

Departments’ implementing regulations should specify that completion of treatment 

regimens as a condition of coverage and payment is a form of treatment limitation and 

defacto financial requirement and, to the extent insured plans apply such restriction to 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 8 of 25 

 - 8 - 

MH/SU benefits, they must be no more restrictive than those applicable to med/surg 

benefits in order to be in compliance with MHPAEA. 

3) Treatment caps result in defacto financial requirements as any treatment needed beyond 

such caps must be paid out-of-pocket. 

The SAMSHA report data demonstrates that the high level of personal spending for 

substance use services are associated with paying for services that exceed the number 

proscribed by the treatment caps, as well as the co-payments or co-insurance rates which 

are typically higher than those required for med/surg services.3

Watershed Recommendation.—The Departments’ implementing regulations should 

specify that treatment caps be eliminated, or to the extent treatment caps are applied to 

MH/SU benefits, similar caps should be applied to med/surg benefits. 

4) Restrictions on out-of-network MH/SU providers with no parallel restrictions for 

med/surg out-of-network are defacto financial requirements. 

Watershed has experienced problems where a coverage policy appears on paper to be 

equal treatment but in reality requires members to pay out-of-pocket. For example, a 

policy which restricts access to providers who are licensed only in the state in which the 

plan is written is a de facto financial requirements, regardless of whether it is defined as a 

financial requirements or a treatment limitation. Similarly, coverage of services which 

are subject to fee schedules that are set so low on the MH/SU side that no out-of-network 

provider would ever accept payment should be defined as a financial requirement if a 

different fee schedule is used to pay for services under the med/surg benefit. 

Watershed Recommendation.—The Departments’ implementing regulations should 

specify that MH/SU benefits which restrict access to providers based on the geographic 

location of the plan in which it was issued is a financial requirement and/or treatment 

limitation. The regulations should specify that access be available to out-of-network 

MH/SU healthcare providers consistent with the med/surg benefit although both are 

subject to the financial requirements relative to out-of-network versus in-network 

benefits. 

More specifically, it is suggested that the implementing regulations clarify that MHPAEA 

parity provisions be applied equally to benefit coverage for out-of-network providers of 

MH/SU services, as it is applied to benefit coverage for out-of-network providers of 

med/surg services. As Congress expressed: 

 

3

 Rosenbaum, S., Kamoie, B., Mauery, D. R., Walitt, B. Medical Necessity in Private Health Plans: Implications 

for Behavioral Health Care, Substance Abuse and Mental Health Services Administration (SAMHSA) DHHS 

Pub. No. (SMA) 03-3790, 14, (Nov. 2003). 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 9 of 25 

 - 9 - 

H.R. 1424 makes clear that equity in financial requirements, treatment 

limitations, and out of network coverage is essential to a strong federal 

mental health parity law.4

Thus, if an insured plan with med/surg and MH/SU benefits, provides out-of-network 

coverage on the med/surg side, it must also provide on par out-of-network coverage on 

the MH/SU side in a manner that is consistent with the requirements of MHPAEA. 

5) Both Inpatient and Outpatient benefit under Med/Surg - Only Outpatient benefit under 

MH/SU. 

Many healthcare plans containing both med/surg and MH/SU benefits, provide both an 

inpatient and outpatient benefit on the med/surg side; however, only an outpatient benefit 

on the MH/SU side. Watershed has experienced this scenario and the patient has borne 

the financial requirements. This situation would be contrary to the language and intent of 

MHPAEA. While MHPAEA does not mandate group health plans to provide a MH/SU 

benefit, if a plan does provide such a benefit, that benefit must be on par with 

substantially all benefits provided on the med/surg side, including out-of-network 

coverage.5

To permit plans to contain a significant limitation on the number of visits, days of 

coverage and scope and duration of treatment, such as an outpatient only benefit on the 

MH/SU side, while providing an inpatient and outpatient benefit on the med/surg side, 

(perhaps under the guise that MHPAEA does not mandate a MH/SU benefit), would be 

contrary to the plain language and intent of MHPAEA. 

Watershed Recommendation.—The Departments’ implementing regulations should 

specify that an outpatient only MH/SU benefit imposes an inequitable financial 

requirement unless the predominant med-surg benefit is also restricted to outpatient 

services. 

B. Examples of Watershed’s Experience with Treatment Limitations. 

1) Treatment Limitations resulting from disparities in type of criteria used to determine 

medical necessity. 

 

4

 Economic Stabilization, Pub. L. No. 110-343, House Report 110-374 (Part 1), p.23. (emphasis added). 

5

 The legislative history for Emergency Economic Stabilization, Pub.L.No. 110-343, House Report 110-374 (Part 

1), III. Summary of the Bill, p. 24, speaks to the intent of MHPAEA. The bill [H.R.1424] does not mandate 

group health plans to provide any mental health coverage; however, if the group health plan does offer mental 

health coverage then there must be equity between mental health coverage and all comparable medical and 

surgical benefits that the plan covers. H.R. 1424 makes clear that equity in financial requirements, treatment 

limitations, and out of network coverage is essential to a strong federal mental health parity law. 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 10 of 25 

 - 10 - 

As noted in the first comment related to financial requirements, the pre-authorization 

process can also result in a treatment limitation because of the inappropriate criteria used 

to determine the medical necessity of MH/SU benefits compared to the med/surg benefit. 

Specifically, it is Watershed’s experience that, on the med/surg side, pre-authorization 

determinations are based on “medical necessity” while, on the MH/SU side, preauthorization determinations are based on the setting in which the care is provided, rather 

than whether or not the service is medically appropriate. Watershed’s experience is 

consistent with the observation made in the SAMSHA sponsored report on medical 

necessity issues related to behavioral healthcare.6

 

2) Failing to provide for the full continuum of care on the MH/SU side, such as an exclusion 

of residential treatment, despite the offering of a full continuum of care through the 

med/surg benefit. 

Residential treatment consists of a 24 hour structured live-in environment with 

rehabilitative treatment services, and is an integral part of the continuum of care for 

substance abuse treatment. While medical necessity determinations must always be 

made, excluding the level of care provided by state licensed residential treatment 

facilities from plan coverage would be an inappropriate treatment limitation that is more 

restrictive than predominant treatment limitations placed on the med/surg side. 

Watershed has experience with these types of determinations which make create a 

financial hardship for a plan member. 

To illustrate, a member obtaining substance abuse treatment may typically be admitted to 

detoxification level of care, followed by intensive inpatient care (rehabilitation) and 

monitoring, followed by residential treatment, followed by out-patient day treatment, 

followed by out-patient group therapy. Unfortunately, Watershed’s experience indicates 

a great deal of variability in the coverage of services across the continuum of care for 

MH/SU services. For example, some plans restrict access to some facility services or to a 

particular level of care by setting treatment limits while other plans may use the financial 

requirements described to limit access to the same or a different level of care. In contrast, 

a member obtaining med/surg care which span the continuum of care from inpatient 

surgery, followed by intensive care in a monitoring unit, followed by continued 

hospitalization in a regular patient room, and eventually followed by outpatient therapy 

do not face such idiosyncratic restrictions. Without equitable coverage across the 

continuum of care, albeit with appropriate utilization management protocols, the 

 

6

 Rosenbaum, S., Kamoie, B., Mauery, D. R., Walitt, B. Medical Necessity in Private Health Plans: Implications 

for Behavioral Health Care, Substance Abuse and Mental Health Services Administration (SAMHSA) DHHS 

Pub. No. (SMA) 03-3790, 14, (Nov. 2003). 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 11 of 25 

 - 11 - 

treatment limits and financial requirements should be comparable in order to be 

consistent with MHPAEA. 

MHPAEA clearly provides that there be “no separate treatment limitations that are 

applicable only with respect to mental health or substance use disorder benefits.”7

 Thus, 

if a plan provides MH/SU benefits, as well as med/surg benefits, Watershed believes that 

the plan may not impose limitations on the scope or duration of treatment under the 

MH/SU benefit that are more restrictive than those imposed under the med/surg benefit. 

Watershed Recommendation.—The Departments’ implementing regulations should 

specify that, if a plan covers every level and type of med/surg care for substantially all 

med/surg benefits (i.e., a full continuum of care), but allows for the exclusion of a certain 

level or type(s) of care, such as residential care, for MH/SU benefits, such plan would 

violate the MHPAEA’s “no more restrictive” standard. In addition, the regulatory 

guidance should include guidance for determining when other similar types of unequal 

restrictions on covered levels of care would violate the MHPAEA’s “no more restrictive” 

standard. 

3) Restrictions on the scope of services offered, such as an outpatient only benefit on the 

MH/SU side, while providing an inpatient and outpatient benefit on the med/surg side. 

As noted above (see also comment #5 above regarding financial requirement examples), 

substance use disorder treatment typically involves a continuum of care beginning with 

detoxification, followed by intensive inpatient care and monitoring and residential care, 

followed by outpatient care, etc. This is no different than a surgical orthopedic procedure 

beginning with the surgery, intensive inpatient physical therapy and additional less 

intensive physical therapy in a residential setting such as a nursing facility, followed by 

outpatient therapy. While MHPAEA does not mandate group health plans provide a 

mental health and/or substance use disorder benefit, it does not require parity with regard 

to “substantially all” benefits in each category. 

Watershed Recommendation.—The Departments’ implementing regulations should 

specify that if a plan does provide such a MH/SU benefit, that benefit must be on par with 

substantially all benefits provided on the med/surg side. Therefore, the regulation should 

address the requirement for plans to provide substantially all med/surg benefits on the 

one hand, and substantially all MH/SU benefits on the other hand and specifically 

prohibit any treatment limit associated with a MH/SU outpatient only benefit when the 

med/surg benefit contains both inpatient and outpatient benefits. 

 

7

 Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008, 29 U.S.C.A § 

1185a(a)(3)(A)(i), (ii) (2009). 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 12 of 25 

 - 12 - 

4) Facility/Clinician type restrictions under MH/SU benefit not on par with Med/Surg 

benefit. 

It is Watershed’s experience that many insured plans, (and several state law mandates), 

providing for MH/SU benefits, restrict such benefits to services rendered only by 

hospitals or facilities affiliated with such hospitals, as defined by the plan. As a result, 

many insured plans do not include appropriately licensed and accredited free-standing 

residential treatment facilities in their definition of “hospital” or “qualified treatment 

facility.” Substance abuse treatment facilities that are properly licensed for each level of 

care they provide are the equivalent of properly licensed hospitals on the med/surg side. 

This treatment limitation, as contained in many insured plans, deprives members of the 

ability to obtain covered treatment from those healthcare providers that specialize in, and 

are specifically licensed to, render those services the member requires. 

Similarly, some group health plans provide coverage for medical services rendered by 

substantially all types of licensed professional clinicians such as physicians, nurses, and 

physical rehabilitation therapists under the med/surg benefit. However, the same plan 

may exclude coverage for substance use disorder services rendered by substantially all 

types of licensed professional MH/SU providers such as psychiatrists, psychologists, 

mental health counselors, social workers and certified addiction professionals under the 

MH/SU benefit. 

Watershed Recommendation.—The Departments’ implementing regulations should 

require that insured plans accommodate the different types of licensed facilities, such as 

residential treatment facilities, and professionals, such as licensed mental health 

counselors, who provide services which are uniquely appropriate to the MH/SU benefit. 

As noted in a recent Health Affairs issue, the President of CIGNA Health Solutions noted 

that a major challenge for health plans in implementing mental health parity is the 

elimination of “any vestiges of structural differences between coverage of MH/SA 

treatment benefits and benefits for general medical care”8. The implementing regulation, 

by acknowledging the inherent differences in the settings and types of providers which 

are unique to MH/SU care, will go a long way in providing technical guidance to plans 

which is consistent with the Congressional intent of MHPAEA. 

5) Level of care exclusions under the MH/SU benefit not on par with the Med/Surg benefit.

In addition to the treatment limits which are based on the facility and provider 

characteristics (see also comment #4 above regarding treatment limitation examples), 

many insured plans providing both a med/surg and a MH/SU benefit, exclude from 

 

8

 Keith Dixon, “Implementing Mental Health Parity: The Challenge For Health Plans”, Health Affairs, 28(3):663 

(May-Jun 2009).
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 13 of 25 

 - 13 - 

coverage the rehabilitation and/or residential levels of care on the substance use disorder 

side, requiring patients to go directly from detoxification into an outpatient setting. 

There exists no such corresponding exclusion on the med/surg side. Residential 

treatment, for example, consists of a 24 hour structured live-in environment with 

rehabilitative treatment services, and is an integral part of the continuum of care for 

substance abuse treatment. While medical necessity determinations need always be 

made, the exclusion from coverage altogether of a state licensed rehabilitation or 

residential level of care, is a treatment limitation that is more restrictive than predominant 

treatment limitations placed on the med/surg benefit. 

To illustrate, a member obtaining substance abuse treatment may typically be admitted to 

detoxification level of care, followed by intensive inpatient rehabilitation and monitoring, 

followed by residential treatment, followed by outpatient day treatment and group 

therapy. To analogize, a member obtaining med/surg care typically will be admitted for 

surgery, followed by intensive care in a monitoring unit, followed by continued 

hospitalization in a regular patient room, followed by outpatient therapy. Every such 

level of med/surg care is a covered benefit, while the rehabilitation and residential levels 

of substance use disorder treatment are often excluded. 

This type of treatment limitation reflects a vestige of the historical difference between the 

practice of covering med/surg services which span the continuum of care while using a 

more targeted and limited approach to defining the MH/SA benefit, including the use of 

treatment limits and significant financial requirements. 

MHPAEA addresses substantially all med/surg benefits on the one hand and 

substantially all MH/SU benefits on the other hand. To permit plans to contain a 

significant treatment limitation based on the number of visits, days of coverage and/or 

scope and duration of treatment, such as an exclusion for rehabilitation and/or residential 

levels of care on the MH/SU side, while providing a full continuum of care on the 

med/surg side, would be contrary to the plain language and intent of MHPAEA. 

Watershed Recommendation.—The Departments’ implementing regulations should 

specify that an insured plan that excludes coverage for a level of care, such as 

rehabilitation and/or residential treatment, under the MH/SU benefit that allows for 

coverage of services for the full continuum under the med/surg benefit, will be deemed in 

violation of MHPAEA. In these situations, the plan should be required to provide 

corresponding levels of care on the MH/SU side as offered on the med/surg side in order 

to be in compliance with MHPAEA. 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 14 of 25 

 - 14 - 

RFI Number 2. WHAT TERMS OR PROVISIONS REQUIRE ADDITIONAL CLARIFICATION TO 

FACILITATE COMPLIANCE? WHAT SPECIFIC CLARIFICATIONS WOULD BE HELPFUL? 

Two areas which require additional clarification include the need for guidance as to the 

definition of a plan which will be subject to the MHPAEA requirements, as well as 

transparency requirements regarding plan information. Watershed provides 

recommendations for the type of guidance that would be helpful in each of these two areas. 

A. Guidance Regarding Definition of a Health Plan. 

1. Carve-Out Plans and Separate EAP’s To Be Aggregated. 

MHPAEA requires that employers and health plans which offer both MH/SU and medsurg benefits establish parity and equity between the two categories of benefits. 

Currently, many large national employers may offer several health plans from which their 

employees may choose, while for behavioral healthcare services, the employer may have 

a single “carve out” benefit for MH/SU services. Among some employers, the “carve 

out” benefit for MH/SU services may be integrated with an employee assistance program 

(“EAP”). 

Watershed Recommendation.—It is suggested that the implementing regulations clarify 

that carve out behavioral health benefits, including those which have been integrated into 

an employer’s EAP to the extent that it is deemed a group health plan, or other group 

health plans offered by an employer providing a MH/SU disorder benefit, should be 

aggregated with the employer’s group plan providing only a med/surg benefit for 

purposes of parity requirements.9 In light of the language and intent of MHPAEA, any 

“non-aggregation” of these separate plans would necessarily result in an evasion of the 

parity requirements of MHPAEA. 

2. No requirement to access EAP prior to primary group plan. 

EAP’s , which have a MH/SU “carve-out” benefit associated with them, typically provide 

limited professional services, such as outpatient therapy, and typically designate the 

professional healthcare providers the employee is permitted to use. Conversely, under a 

group health plan providing an out-of-network benefit, the employee is able to choose 

 

9

 See Proposed Rule, 69 Fed Reg 78800, 78807 and 78817 (Dec. 30 2004). Under these proposed regulations, 

generally, all of the medical care benefits provided by an employer are considered to be a single group health 

plan, unless: “(A) It is clear from the instruments governing the arrangement or arrangements to provide health 

care benefits that the benefits are being provided under separate plans; and (B) The arrangement or 

arrangements are operated pursuant to such instruments as separate plans.” Prop. Labor Reg. 

§2590.732(a)(2)(i) and Prop. Treas. Reg. §54.9831-1(a)(2)(i), 69 Fed Reg at 78807 and 78817. Similarly, “[i]f 

a principal purpose of establishing separate plans is to evade any requirement of law, then the separate plans 

will be considered a single plan to the extent necessary to prevent the evasion.” Prop. Labor Reg. 

§2590.732(a)(2)(iii) and Prop. Treas. Reg. §54.9831-1(a)(2)(iii), 69 Fed Reg at 78817. 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 15 of 25 

 - 15 - 

their healthcare provider. In addition, if an employee is required to access the EAP 

benefit first, the foreseeable tendency will be to require the employee to obtain outpatient 

care, as provided under the EAP, before permitting the employee to access the inpatient 

benefit under the primary group health plan. This requirement creates a stumbling block 

to the employee’s direct access to inpatient care. MHPAEA was enacted to remedy a 

specific problem, namely, “the discrimination that exists under many group health plans 

with respect to mental health and substance-related disorder benefits.”10 To require an 

employee to access and exhaust the EAP benefit prior to being eligible for the MH/SU 

benefit under the primary group health plan imposes an impermissible, separate treatment 

limitation in violation of MHPAEA. 

Watershed Recommendation.—In addition to the recommendation regarding 

aggregation of carve-out plans which are integrated with an EAP, it is suggested that the 

implementing regulations clarify, in the case of a separate EAP providing a MH/SU 

benefit, and a separate insured plan providing both a med/surg benefit and a MH/SU 

benefit, to the extent that the EAP is permitted to remain as a separate plan (not 

impermissible under the anti-abuse laws), that there be no requirement that employees 

utilize the MH/SU benefit under the EAP before being eligible to access the MH/SU 

benefit under the primary group health plan. Such an eligibility requirement would be an 

impermissible separate treatment limitation, which imposes an eligibility requirement not 

in parity with eligibility requirements under the med/surg benefit, prohibited by 

MHPAEA. 

B. Guidance Regarding Transparency of Plan Information. 

Transparency is an important element of ensuring meaningful compliance with the parity 

requirement of MHPAEA. Congress anticipated the need for plans to provide sufficient 

information to current or potential participants, beneficiaries or contracting providers and 

to provide information as to the reason for any denial under the plan with respect to 

MH/SU benefits. 

 

Watershed Recommendations.— With regard to MHPAEA §512(a)(4), “Availability of 

Plan Information,” Watershed requests that the implementing regulations address the 

ways in which plans will be monitored to ensure compliance with MHPAEA and the 

manner in which the public and relevant stakeholders may access information on 

MHPAEA compliance. 

It is suggested that the regulation be specific as to what plan information must be made 

available to current or potential participants, beneficiaries or providers. The regulation 

should distinguish between the type of information available generally, and the type of 

 

10 H.R. REP. NO. 110-374, pt. 2, at 12 (2007) (Ways & Means Comm.). 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 16 of 25 

 - 16 - 

information which needs to be provided at the point of service, when a determination of 

medical necessity is being made. 

With regard to the latter, it is particularly important to establish timeline requirements in 

the regulation. Specifically, as required under MHPAEA § 512(a)(4), the regulations 

should address the manner and timeliness of plans providing access to the criteria for 

medical necessity determinations made under the plan to current or potential participants, 

beneficiaries or providers. In particular, in order to ensure that compliance with parity is 

meaningful and transparent, it is suggested that the regulations require plans to provide 

public access to their medical coverage policies (including policies on utilization 

management such as prior authorization), the criteria for making policies on medical 

coverage, the process for review of claims for payment, and the appeals process for any 

denials of claims by posting such information electronically on their website in an easily 

accessible manner. Specifically, the implementing regulations may ensure compliance by 

barring a plan from relying upon any medical coverage policies that are not posted. 

Watershed believes that the language of MHPAEA contemplates that the implementing 

regulations can require both ERISA plans and health plans to provide important 

information under the provision related to "Availability of Plan Information.” It is 

suggested that ERISA's "full and fair review" process provides an important structure for 

specifying the type of information that should be available from ERISA plans and health 

plans. In addition, as discussed more fully in Watershed’s response to RFI Number 3, 

Watershed suggests that the regulation address the definition of medical necessity for 

both med/surg and MH/SU benefits to ensure any requirements based on medical 

necessity are applied consistently and equitably across MH/SU and med/surg benefits. 

The need to readily access this information is particularly relevant to out-of-network 

providers who need to make timely and informed decisions on whether to furnish medical 

services and items. As discussed more fully below in Watershed’s response to RFI 

Number 3, it is vitally important to have a timely process to resolve differences between 

published criteria and individual modifications that a plan or MBHO may apply at the 

point-of-service. Otherwise, serious inequities occur at a time when the health plan 

member is in crisis and is attempting to access services which are appropriate to the 

situation in an accredited facility licensed to provide critical MH/SU services, using 

nationally recognized ASAM placement criteria. 

RFI Number 3. WHAT INFORMATION, IF ANY, REGARDING THE CRITERIA FOR MEDICAL 

NECESSITY DETERMINATIONS MADE UNDER THE PLAN (OR COVERAGE) WITH RESPECT TO MENTAL 

HEALTH OR SUBSTANCE USE DISORDER BENEFITS IS CURRENTLY MADE AVAILABLE BY THE PLAN?

TO WHOM IS THIS INFORMATION CURRENTLY MADE AVAILABLE AND HOW IS IT MADE AVAILABLE?

ARE THERE INDUSTRY STANDARDS OR BEST PRACTICES WITH RESPECT TO THIS INFORMATION AND 

COMMUNICATION OF THIS INFORMATION? 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 17 of 25 

 - 17 - 

Medical necessity determinations are a critical aspect of establishing equity and parity 

between med/surg and MH/SU benefits. The determinations are made in the context of a 

specific service along the continuum of care. In general, the outcome of a positive medical 

necessity determination defines a "covered service," a term which is understood by health 

plans, providers and patients alike. 

One of the most difficult and oftentimes frustrating aspects of medical determinations is the 

fact that the definition of the term varies across health plans, although there is a consensus as 

to the various dimensions that are considered as part of a medical necessity determination. A 

critical issue for the implementing regulation to provide guidance on is the need for a plan to 

have an equitable process as to the medical necessity criteria used under the med/surg and 

MH/SU benefits alike. 

The Substance Abuse and Mental Health Services Administration (“SAMSHA”) issued a 

Special Report on "Medical Necessity in Private Health Plans: Implications for Behavioral 

Health" (the “SAMSHA Medical Necessity Report”) which is an exhaustive review of 

research findings and case law as well as state and federal laws pertaining to medical 

necessity reviews and determinations. 

The SAMSHA report noted above lists five dimensions that can be considered as part of 

medical necessity determinations including: contractual scope, standard of practice, patient 

safety and setting, medical service and cost. In the report, Sabin and Daniels addressed the 

unique aspects of defining the medical necessity of mental health services and concluded that 

the "most rational model is one that treats a medically defined diagnosis, such as one 

delineated in the DSM-IV, to decrease the impact of disease or disability."11

The SAMSHA report suggests that a major challenge in making medical necessity 

determinations for MH/SU services, compared to med/surg services is an underlying debate 

among health plans and review organizations as to whether "medical necessity" is the 

appropriate term, or, whether "clinical appropriateness" is a more accurate term for 

evaluating services under the MH/SU benefit. Therefore, medical necessity reviews for 

MH/SU benefits are more likely to focus on an assessment of "what level of services in 

which settings are most clinically appropriate for a given patient in light of his or her clinical 

social needs."12 Thus, medical necessity determinations of MH/SU services often focus on 

the "form and manner" of treatment, rather than whether treatment will be provided. 

The SAMSHA report also notes that in "behavioral health, unlike general medicine, most 

inpatient admissions are unplanned and occur because a person (or family member or 

 

11 Rosenbaum, S., Kamoie, B., Mauery, D. R., Walitt, B. Medical Necessity in Private Health Plans: Implications 

for Behavioral Health Care, Substance Abuse and Mental Health Services Administration (SAMHSA) DHHS 

Pub. No. (SMA) 03-3790, 14, (Nov. 2003). 

12 Id. 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 18 of 25 

 - 18 - 

provider on behalf of that person) seeks emergency crisis admission.” 13 Although these 

types of services may be approved initially, disputes about the medical necessity of 

subsequent services are common. Certain disputes are resolved with additional 

documentation, but most often, in Watershed’s experience, they are related to the review 

criteria which are considered to be "guideposts" used by utilization review staff who may or 

may not have adequate training. 

Watershed interacts with utilization review programs routinely and finds that review criteria 

are frequently available from the review organization, however, the criteria are not used 

consistently, or there may be some adjustments made by the review staff which appear to be 

inconsistent. 

As an example, Watershed had a patient whose intensive inpatient rehabilitation level of care 

was denied based upon the review of a physician whose level of expertise was as a Board 

Certified Gynecologist. Putatively, the denial was based on an assessment that the patient 

did not meet the ASAM Placement Criteria. Watershed consistently uses these criteria since 

the State of Florida's licensing requirements are "cross-walked" to the ASAM criteria. Upon 

further follow-up with the MBHO, it was clear that the patient had met the ASAM Placement 

Criteria, however, unlike the criteria, the medical necessity determination was based on a 

requirement that the patient tries and fails an outpatient level of care before the admission to 

inpatient would be “medically necessary.” The additional criterion related to outpatient 

treatment failure was neither tied to the patient’s presenting medical state, nor was made 

available to Watershed prior to admission. 

As this example demonstrates, the “public” criteria that are available are used only as 

guideposts and are not the entire criteria set applied by plans. This example reflects two of 

the top ten problems in medical necessity determination processes.14 Specifically, the claims 

reviewer was not appropriately trained and there was insufficient information provided in the 

initial determination. 

Watershed Recommendation.—It is critical for the implementing regulation to require 

health plans to use an evidence-based continuum of care framework in making medical 

necessity determinations for services in the med/surg and MH/SU benefit alike. The criteria 

should be transparent to the health provider and the training of the reviewers should be 

appropriate. 

RFI Number 4. WHAT INFORMATION, IF ANY, REGARDING THE REASONS FOR ANY DENIAL 

UNDER THE PLAN (OR COVERAGE) OF REIMBURSEMENT OR PAYMENT FOR SERVICES WITH RESPECT 

 

13 Id. at 15 

14 Rosenbaum, S., Kamoie, B., Mauery, D. R., Walitt, B. Medical Necessity in Private Health Plans: Implications for 

Behavioral Health Care, Substance Abuse and Mental Health Services Administration (SAMHSA) DHHS Pub. No. 

(SMA) 03-3790, 22, (Nov. 2003). 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 19 of 25 

 - 19 - 

TO MENTAL HEALTH OR SUBSTANCE USE DISORDER BENEFITS IS CURRENTLY MADE AVAILABLE BY 

THE PLAN? TO WHOM IS THIS INFORMATION CURRENTLY MADE AVAILABLE AND HOW IS IT MADE 

AVAILABLE? ARE THERE INDUSTRY STANDARDS OR BEST PRACTICES WITH RESPECT TO THIS 

INFORMATION AND COMMUNICATION OF THIS INFORMATION? 

Unfortunately, the current standards for providing information for denials are entirely 

inconsistent. The SAMSHA Medical Necessity Report reviews the industry practices and 

notes that while general information is available to the public, most of the definitions and 

procedures are found in contracts and internal documents which are considered to be 

proprietary and confidential. The SAMSHA report also reviewed the federal laws pertaining 

to medical necessity reviews and explored the "full and fair review" procedural requirements 

that all ERISA health plans must meet, which can be used as a starting framework for 

implementing MHPAEA. The SAMSHA report indicates that ERISA addresses eight of ten 

medical necessity utilization review and appeals procedures which are critical to a "full and 

fair review." 

Watershed Recommendation.—As noted in Watershed’s comments regarding the need for 

transparency of plan information, Watershed suggests that the implementing regulation for 

MHPAEA address the obligation of plans to provide timely information as to the reason for 

denial. Specifically, the implementing regulation should require plans to provide information 

as to the medical necessity criteria used for the MH/SU benefit as compared to the med/surg 

benefit. In addition, MHPAEA should require that health plans provide plan information 

which is structured along the lines of the ten utilization and review procedures which are an 

integral part of the full and fair review required under ERISA. By requiring that this type of 

detailed information be provided to all stakeholders, the departments will facilitate a process 

by which beneficiaries, plans and MH/SU providers will be able to collaborate more 

effectively in achieving the parity and equity goals of MHPAEA. 

RFI Number 5. TO GATHER MORE INFORMATION ON THE SCOPE OF OUT-OF-NETWORK 

COVERAGE, THE DEPARTMENTS ARE INTERESTED IN FINDING OUT WHETHER PLANS CURRENTLY 

PROVIDE OUT-OF-NETWORK COVERAGE FOR MENTAL HEALTH AND SUBSTANCE USE DISORDER 

BENEFITS. IF SO, HOW IS SUCH COVERAGE THE SAME AS OR DIFFERENT THAN OUT-OF-NETWORK -

COVERAGE PROVIDED FOR MEDICAL AND SURGICAL BENEFITS? 

As noted in the fourth example of a financial requirement which is currently imposed, 

Watershed’s experience is that facility licensure restrictions, resulting in geographic 

restrictions, as well as member/beneficiary residency restrictions, are common examples of 

out-of-network coverage limitations currently imposed by plans. As noted in the recent 

Health Affairs article, addressing this issue is one of the significant administrative challenges 

that health plans face as they prepare for the implementation of MHPAEA.15 Specifically, 

many group health plans that contain both med/surg and MH/SU benefits include 

 

15 Keith Dixon, “Implementing Mental Health Parity: The Challenge For Health Plans”, Health Affairs, 28(3):665 

(May-Jun 2009). 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 20 of 25 

 - 20 - 

requirements for state-specific facility and clinician licensure on the MH/SU side that are not 

included on the med/surg side. 

Under such plans, members are covered only if they receive treatment from facilities and/or 

clinicians licensed by the state from which the plan is issued. This licensure limitation on the 

MH/SU side results in geographic restrictions, and therefore treatment limitations, not on par 

with the med/surg benefit. For example, members may seek medical and surgical treatment 

from out-of-state healthcare providers, including centers of healthcare excellence. However, 

on the MH/SU side, the member cannot leave the state in which the plan is issued in order to 

receive covered treatment. In contrast, the med/surg benefit in such plan only requires that 

facilities and/or clinicians are appropriately licensed by the state in which the providers are 

located and accordingly in which the services are rendered. 

Similarly, certain insured plans require that the member be a resident of the state from which 

the plan is issued in order to obtain covered treatment on the MH/SU side, thereby creating 

treatment limitations (again, often prompted by state mandates). The med/surg benefit in 

such plans contains no such restriction. Thus, for example, a member insured under a 

Massachusetts plan, who resides in the neighboring state of Connecticut, would be covered 

for medical and surgical care, but would not be covered for mental health or substance use 

disorder treatment services. 

These group health plans oftentimes include such restrictions, as prompted by state law 

mandates and mandated offerings.16 These mandates are preempted to the extent that they 

prevent the application of MHPAEA.17 As set forth in the legislative history for Economic 

Stabilization, Pub. L. No. 110-343, House Report 110-374 (Part 1), pp.21, 23: 

Since 1996, a key principle for Congress has been to incrementally reform 

private health coverage by establishing a federal floor of protections for 

workers and their families. Through a federal standard that is a floor, not a 

 

16 Currently, numerous state laws impose licensure restrictions on permissible coverage, and the form in which 

that coverage may be offered, for MH/SU benefits. Examples of such state law restrictions/restricted offerings 

include, but are not limited to, Connecticut, Kansas, Louisiana, Mississippi, North Dakota, Ohio, Oregon, 

Pennsylvania, South Dakota, Utah, Virginia, Vermont, and Washington. 

 Similarly, other state law restrictions and restricted offerings related to MH/SU benefits require that the member 

be a resident of the state in which the plan is issued in order to obtain covered MH/SU treatment, thereby 

creating a situation in which residential requirements lead to an out-of-network determination that is not equally 

applied on the med/surg side. Examples of such state law restrictions/restricted offerings include, but are not 

limited to, Massachusetts, Montana, and New Hampshire. 

17 MHPAEA amends both the federal Employee Retirement Income Security Act of 1974 (“ERISA”) and the 

Public Health Service Act (“PHSA”) by incorporating mental health parity provisions into these acts. The 

preemption clauses applicable to ERISA at 29 U.S.C. §§ 1144 (a) and (b) (2) and 1191 and to PHSA at 42 

U.S.C. § 300gg-23 are applicable to these MHPAEA amendments and specify that state law shall be superseded 

to the extent the law prevents the application of an ERISA or PHSA requirement. 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 21 of 25 

 - 21 - 

ceiling, Congress has recognized that state policymakers may determine that 

to protect patients in state-regulated plans, a stronger set of standards are 

necessary than those provided in federal law. In fact, many states now require 

insurance companies to cover mental health services. 

 * * * 

The bill [H.R. 1424] generally would not preempt state laws that do not 

“prevent the application” of federal mental health parity standards... The bill 

also specifically does not intend to preempt state laws containing benefit 

mandates... 

Thus, these state law mandates and mandated offerings are preempted to the extent that they 

prevent the application of MHPAEA. Specifically, to the extent the licensure (hence 

geographic) and residency restrictions in state law mandates create treatment limitations 

applicable only to (or disparately to) MH/SU benefits, then such restrictions would 

undermine the parity of MH/SU benefits required under MHPAEA and should be preempted 

in order for state laws to reach the federal parity floor, in compliance with MHPAEA. 

Watershed Recommendations.—The Departments’ regulatory guidance should confirm 

that state law licensure and residency restrictions are preempted to the extent such limitations 

are applicable only to (or disparately) to MH/SU benefits. It is suggested that model state 

laws be proposed in order to provide guidance to state legislators and regulators regarding 

revisions to state parity and mandate laws necessary to effectuate compliance with 

MHPAEA. 

RFI Number 6. WHICH ASPECTS OF THE INCREASED COST EXEMPTION, IF ANY, REQUIRE 

ADDITIONAL GUIDANCE? WOULD MODEL NOTICES BE HELPFUL TO FACILITATE DISCLOSURE TO 

FEDERAL AGENCIES, STATE AGENCIES, AND PARTICIPANTS AND BENEFICIARIES REGARDING A 

PLAN'S OR ISSUER'S ELECTION TO IMPLEMENT THE COST EXEMPTION?

Watershed recognizes that health plans will be seeking to strike a balance between providing 

equity and parity of benefits, while also managing the rate of growth in health insurance 

premiums. As noted earlier in these comments, Watershed believes that the U.S. Office of 

Personnel Management (“OPM”) in its Federal Employee Health Benefit Program 

(“FEHBP”) Call Letter dated April 20, 2009 (“Call Letter”), offered health plans with 

important guidance on this issue which should be reflected in the MHPAEA implementing 

regulations. In particular, OPM stressed the importance of health plans identifying valuebased solutions to managing the health insurance benefit, (including both the med/surg 

benefit and the MH/SU benefit), as well as the use of managed care organizations such as the 

Managed Behavioral Healthcare Organization (“MBHO”).

18 The Call Letter specifically 

 

18 It is important to this discussion to understand that the substance use disorder treatment provider community has 

a long history of providing substance use disorder services with a strong, upfront role for managed care 

organizations, such as the MBHO. Indeed, in response to the existing treatment limitations and financial 

requirements currently experienced, the MH/SU provider community, supported by funding from SAMSHA 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 22 of 25 

 - 22 - 

directs plans to “demonstrate that you have evaluated your proposed benefit changes with 

regard to their influence on promoting the most effective care (i.e., the care that generally 

produces the best health outcomes), not just with respect to cost.” (Call Letter, p.2, I. 

Introduction). 

The central role of the MBHO in the FEHBP Call Letter also highlights another important 

difference between the two benefits that must be acknowledged if parity is to be achieved. 

That is, with MH/SU benefits, plans often have the MBHO take a more visible, active role 

with MH/SU providers; however, with med/surg benefits, plans predominantly use 

management organizations in a much less active, less visible role. For example, in contrast 

to the more “pervasive” role that the MBHO plays in MH/SU benefit management, a 

managed care organization (“MCO”) is often seen as “invisible” to the patient who is 

accessing physician or hospital services. More recently, however, specialized benefit 

managers such as a pharmacy benefit manager (“PBM”) or a radiology benefit manager 

(“RBM”), which focus on targeted patients or disease conditions, are playing a role which is 

more consistent with the MBHO role. 

As discussed previously, based upon the important role and cost containment that can be 

achieved through the use of managed care organizations, Watershed believes that valuebased decisions for managing both med/surg and MH/SU benefits should be considered as an 

important factor in implementing the parity provisions of MHPAEA. In addition, the 

implementing regulatory provisions regarding treatment limitations and financial 

requirements should require an equitable use of benefit management, and consistency in the 

processes by which medical necessity determinations are made for med/surg services as well 

as MH/SU service. The processes span the range from the publication of criteria and their 

use by appropriately trained reviewers, to the timeliness of appeals processes. Continued use 

of different, inequitable utilization management practices for med/surg and MH/SU benefits 

would be inconsistent with the intent of parity in terms of financial requirements and 

treatment limitations under MHPAEA. 

Watershed Recommendations.—The Departments’ regulatory guidance should provide a 

clear statement that value-based decisions must be factored into the methodology for 

calculating the actual costs of coverage for purposes of determining whether a plan qualifies 

for a cost exemption under MHPAEA. Watershed believes that in keeping with Congress’ 

intent to provide parity, the cost exemption should not be used to maintain existing MH/SU 

management limitations without trying to improve the management and efficiencies of the 

med/surg benefit. Specifically, as previously discussed on pages 4 and 5, the implementing 

 and other agencies within the Department of Health and Human Services, developed an evidence-based 

managed care approach to providing the appropriate level of service across the continuum of care. In the 

substance abuse area, this continuum of care is represented by the Patient Placement Criteria of the American 

Society of Addiction Medicine (“ASAM”). These criteria, first published in 1991, provide a common language 

to develop a broader continuum of care that has been used by health plans and substance abuse providers alike. 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 23 of 25 

 - 23 - 

regulatory provision regarding the cost exemption should require an assessment as to whether 

or not there is an equitable use of benefit management for med/surg and MH/SU services. 

In addition, the implementing regulatory provision regarding treatment limitations and/or 

financial requirements should require consistency in the processes by which medical 

necessity determinations are made for med/surg services as well as MH/SU service. The 

processes span the range from the publication of criteria and their use by appropriately 

trained reviewers through the timeliness of appeals processes. Continued use of different 

utilization management practices for med/surg and MH/SU benefits would be inconsistent 

with MHPAEA 

* * * * * 

CONCLUSION: 

Watershed appreciates the opportunity to comment on the MHPAEA RFI. The six areas 

of interest reflect the implementation challenges which are associated with establishing parity 

and equity between MH/SU and med/surg benefits. Watershed’s hope is that it has provided 

you with important information for you to use in developing an implementing regulation. As a 

provider of MH/SU services, Watershed would like to offer suggestions as to the level of 

specificity that would be helpful to ensure that health plans are able to design benefit offerings 

that meet the legislative intent of MHPAEA and offer their members the opportunity, if needed, 

to benefit from necessary MH/SU services which are provided at the appropriate level on the 

continuum of care. Watershed recognizes the how the differences between med/surg services 

and MH/SU services and the unique history of the coverage of these services and management of 

the two benefit categories create a challenge in implementing the parity and equity intent of 

MHPAEA. For that reason, Watershed has provided a construct and recommends the use of the 

common elements of both benefits. Specifically, it is important to focus on the need to provide 

an appropriate, yet unique, continuum of services associated with the med/surg and MH/SU 

benefits. In addition, the regulatory guidance needs to provide the necessary level of specificity 

with regard to the definition of predominance to ensure that there is parity and equity in access to 

services at the appropriate level of care. 

 In summary, Watershed’s recommendations for MHPAEA regulatory guidance 

predominantly are focused on the need for several specific clarifications related to the 

application of treatment limitations. Specifically, Watershed believes that the implementing 

regulation should include the following guidances. 

• Require that plans which offer both an inpatient and outpatient benefit for med/surg 

services across the continuum of care, must offer both an inpatient and outpatient benefit 

for MH/SU services across the continuum of care. This provision will eliminate "frontend" use of both a treatment limitation and a financial requirement to restrict important 
MHPAEA Comments 

CMS File Code CMS-4137-NC 

IRS File Code CC:PA:LPD:PR (REG-120692) 

May 28, 2009 

Page 24 of 25 

 - 24 - 

inpatient MH/SU services that are medically necessary for persons with coverage by a 

health plan that offer a MH/SU benefit. The requirement to provide for the full 

continuum of care for MH/SU benefits should eliminate a common exclusion of 

residential or inpatient rehabilitation treatment commonly found in insurance contracts, 

primarily as a means of limiting the cost of the health benefit. 

• Require that plans acknowledge the licensing and accreditation differences between the 

types of providers of services covered under a med/surg benefit and a MH/SU benefit. 

Specifically, plans should not apply restrictions to a MH/SU benefit that is based on 

provider type, such as exclusions for care rendered in duly licensed and accredited freestanding residential treatment facilities or non-hospital facilities. These restrictions 

constitute a treatment limitation. 

• Similarly, the regulation should eliminate geographic restrictions on MH/SU benefits, by 

limiting access to any provider which is not licensed in the state in which the plan is 

issued unless the same in-state licensing limitation is applied to the med/surg benefit. 

With regard to the guidance for the determination of financial requirements, Watershed 

suggests a specific construct for identifying the predominant form of financial requirements for 

med/surg benefits which should be used for the MH/SU benefit. 

• With respect to the improper application of financial requirements, Watershed 

underscores the point that, in general, the "predominant" use of deductibles and 

coinsurance (or co-payments) for the majority of services covered under the med/surg 

benefit should apply to MH/SU services when a plan offers both types of health benefits. 

Specifically, the predominant financial requirements for hospital and physician services 

covered by a med/surg benefit should be applied to the facility and non-facility services 

along the continuum of services covered by the MH/SU benefit. 

Additionally, there is a need for the implementing regulation to address financial requirements 

based on compliance with treatment protocols. 

• Specifically, plans should eliminate treatment completion requirements for 

reimbursement of services rendered under the MH/SU benefit that do not exist under the 

med/surg benefit. 

 

Cutting across the treatment limitations and financial requirements is a need for the regulatory 

guidance to address: 

• Access to plan information which results in parity and equity between the MH/SU benefit 

with the med/surg benefit. Specifically, the implementing regulation should require 

information which builds upon the "full and fair review" requirements of ERISA by 

establishing a definition of medical necessity which incorporates the continuum of care